COVID-19 Crisis May Give HMM an Opportunity
HMM has recently raised 720 billion won by issuing convertible bonds (CBs).
The shipping company sold on April 17 unsecured CBs worth 720 billion won to Korea Development Bank (KDB) and Korea Ocean Business Corp., a state-run corporation set up to support shipbuilding and shipping companies.
KDB and KOBC are the shipper’s two largest shareholders. They will each acquire CBs worth 380 billion won. Depending on HMM's decision, the bonds’ maturity can be extended for 30 years under the same conditions of the issuance.
HMM plans to use 400 billion won for facility investment and 320 billion won in operating funds. HMM has decided to invest 143 billion won to lease 48,980 container boxes to use on 12 large 24,000-TEU container ships that will be put into service beginning April and eight 16,000 TEU-class vessels to be built in 2020.
Shipping industry insiders say that HMM's capital expansion plan is quite meaningful in that it came out at a time when the world's shipping industry is suffering from a reduced cargo volume and liquidity issues. HMM will be able to seize an opportunity as the landscape of the world shipping industry is changing with only competitive players expected to survive. Recently, the international shipping industry is facing a growing liquidity problem amid a sharp drop in demand arising from the spread of the novel coronavirus. For instance, Singapore shipping company Pacific International Lines is currently selling 12 ships as it has difficulties in repaying debt due to cash flow problems.
HMM believes that it will be able to survive with super-large container ships even in the worst case where the overall shipping volume shrinks by 20 percent to 30 percent. In the case of 24,000 TEU super ships, HMM will use only 5,000 TEU hold spaces and lease the remainder to The Alliance, a shipping alliance to which HMM belongs. If HMM’s ally shipping companies, Hapag-Lloyd or ONE, order large ships, HMM will be able to get its leased hold spaces back. It may be a merit in a tough market environment to have a business structure with more hold spaces leased. “As HMM's sales power grows, it can make more profit by filling slots. If HMM purchases eight 16,000 TEU container ships next year as planned, it will be able to further lower the cost of slots and increase competitiveness," an HMM official said.